The regulator insisted it had taken "strong, targeted action" to protect consumers but was constrained in what it could do by the existing legislation.

The MPs called for the requirement to display the annual percentage rate (APR) of interest on credit to be replaced with a clearer statement of the total amount repayable on the loan, to help consumers understand and compare different products.

Wonga has put a video on Youtube seeking to explain its 4,214% APR figure.

Presenting her committee's report, Hodge said the OFT had been "ineffective and timid in the extreme" in tackling the problem.

She said: "With money getting tighter and banks lending less, consumers are increasingly having to turn to alternative providers of credit.

"Some of these lenders use predatory techniques to target vulnerable people on low incomes, encouraging them to take out loans which, when rolled over with extra interest, rapidly become out of control debts.

"Such disgraceful practices by the shabby end of the credit market are costing borrowers an estimated £450 million or more each year.

"Meanwhile, the Office of Fair Trading, the regulator of this sector, has been ineffective and timid in the extreme. It passively waits for complaints from consumers before acting.

"It has never given a fine to any of the 72,000 firms in this market and very rarely revokes a company's licence.

"It doesn't understand the market - how much each firm lends and who its customers are - and can't be certain if directors of companies that have run into trouble are now running other companies."

She criticised the OFT for failing to increase its £1,075 fee, which applied even to large credit card firms, in order to "raise its game as a regulator" with the extra revenue.

In March the OFT handed 50 payday lenders a 12-week deadline to prove their good behaviour or risk losing their licences to trade, which the MPs said was an "encouraging" step.

Formal investigations have already been opened by the watchdog into the business practices of three un-named payday lenders.

Three firms have also had their licences revoked and two have surrendered their licences since the review of the sector started.

The OFT will be replaced as the consumer credit regulator by the Financial Conduct Authority next year, and the report said the new watchdog "needs to have a fundamentally different and more robust approach".

Earlier this month, The Huffington Post UK revealed how payday lenders were lobbying the government behind the scenes against the tougher regime.

A spokesman fort the OFT said: "Far from being timid, the OFT has taken strong, targeted action to tackle the areas of greatest risk to consumers.

"In the last financial year alone the OFT has revoked the licences of some of the UK's largest credit brokers and debt management firms, and taken formal action in more than 85 other cases.

"Around 100 debt management companies have also left or been refused entry to the market since 2011, and the leading 50 payday lenders have recently been given 12 weeks to change their business practices or risk losing their licences. Both cases follow proactive reviews of entire sectors."

Richard Lloyd, executive director of consumer group Which? said: "This is a damning verdict on the credit market and the OFT's failure in the past to step in and protect consumers."